Kerala High Court
Deputy Commissioner Of Sales Tax (Law) vs I.C.I. (P.) Ltd. on 28 November, 1980
Author: V. Balakrishna Eradi
Bench: V. Balakrishna Eradi
JUDGMENT K. Bhaskaran, J.
1. This revision is by the Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam, and is directed against the order of the Kerala Sales Tax Tribunal, Additional Bench, Kozhikode, dated 4th August, 1979, made in Tribunal Appeal No. 173 of 1973.
2. The final sales tax assessment for the year 1969-70 in respect of the respondent-assessee, namely, Messrs. I. C. I. (Private) Ltd., Cochin, had been completed by the assessing officer on best judgment by the order dated 30th March, 1971, fixing the taxable turnover at Rs. 23,24,191.68. The assessing officer had included a turnover of Rs. 14,67,873.28 in the taxable turnover of the assessee, even though the assessee had contended that this turnover was not liable to be assessed as the transactions relating to this turnover were in the course of import. The appeal, S. T. A. No. 1000 of 1971, filed by the assessee, was dismissed by the Appellate Assistant Commissioner of Sales Tax by his order dated 1st December, 1973. In second appeal the Appellate Tribunal, reversing the decisions of the assessing officer and the first appellate authority, allowed the appeal in so far as it related to the contention of the assessee that the turnover of Rs. 14,67,873.28 was not includible in the taxable turnover of the assessee for that assessment year. It is aggrieved by the decision of the Appellate Tribunal that this revision has been preferred by the Deputy Commissioner of Sales Tax under Section 41 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as the Act).
3. To appreciate the legal points raised in the revision petition it is necessary to state the nature of the transactions, with respect to which taxability under the Act is in dispute, which are as follows : The customers of the assessee had actual user's licences to import goods (chemicals) from foreign countries. They entered into contracts with the assessee quoting their import licence numbers, quantity of goods required, rate, etc., as agreed to between them by prior correspondence. Letters of authority were also furnished to the assessee to import the goods covered by the licences on behalf of the licensees. One of the conditions of the licence was :
The goods for the import of which this licence has been granted shall be the property of the licensee at the time- of import and therefore after the time of clearance through customs.
The letter of authority in each case was issued to the assessee subject to the condition :
The person or concern in whose favour it has been issued will act purely as an agent of the licensee, and the goods imported will be the property of the licence-holder, both at the time of clearance through the customs and subsequent thereto. The licence-holder will have to ensure that the goods on importation will be delivered to him and shall not be disposed of otherwise. The licensee shall not cause or permit the holder of the letter of authority to dispose of the goods.
It will also appear that in all correspondence and documents including the customs bill it was required to be indicated that the goods had been imported by the assessee on behalf of the licensees. On the basis of the letters of authority and other documents mentioned above, the assessee placed orders with the foreign supplier, namely, Messrs. Plant Protection Limited, England, for the supply of the identical goods, quoting the import licence obtained by its customers and specifically mentioning that the import was to the account of those customers. The contention of the assessee, rejected both by the assessing officer and the appellate authority, but accepted by the Appellate Tribunal, was that it had been acting merely as the agent of its customers, without having any right to divert the goods imported either for its own use or for sale to others and as such, it being sale in the course of import, was exempted from liability to sales tax by virtue of the provisions contained in Section 5 of the Central Sales Tax Act, 1956.
4. It is argued before us by the Government Pleader appearing for the revenue that the connected documentary evidence adduced in support of the claim revealed that the assessee had entered into contracts with the prospective buyers possessing actual user's licence for the import and sale of the goods according to the terms and conditions agreed upon ; the importation of the goods was really in pursuance of subsequent contracts entered into with foreign suppliers by the assessee, thereby showing that there was no privity of contract between the foreign suppliers and the assessee's customers. He pointed out that the invoices made by the foreign suppliers were all in the name of the assessee for the sales effected by them; in respect of the sales made by the assessee to its customers, subsequent to the clearing of the goods from the customs, the assessee had issued separate invoices to the customers, collecting Kerala general sales tax on such sales; and there were in the process two sales, one by the foreign supplier to the assessee, and the other by the assessee to its customers. According to him, the import stream came to an end with the assessee taking delivery of the goods, thus culminating in the first sale effected by the foreign supplier to the assessee that occasioned the import; so much so, subsequent sales that the assessee effected to its customers were distinct from the first, not falling within the ambit of Section 5(2) of the Central Sales Tax Act, 1956, enabling exemption from the liability to tax.
5. The line of reasoning adopted by the Government Pleader does not appear to be correct. What really transpired is this : The assessee initially entered into written contracts with prospective buyers for the import and sale of the goods. Thereafter goods were imported from outside India against actual user's licence of the customers under letter of authority. The invoices, no doubt, from the foreign suppliers were in the name of the assessee; and the assessee in its turn invoiced its customers. It has, however, to be noticed that the import was made in bulk on behalf of a number of customers and the supplies to the customers were apportioned in separate lots after clearance from the port. The assessee itself cleared the goods from the port and effected delivery to the customers. It was the contract between the assessee -and the customers that resulted in the movement of the goods from the foreign company, and in that view it evidenced a sale in the course of import, exempted from liability to tax under Section 5(2) of the Central Sales Tax Act. It has now been well-settled by the decision of the Supreme Court in Deputy Commissioner v. Kotak & Co. [1973] 32 S.T.C. 6 (S.C.), that sales under the circumstances mentioned above are sales in the course of import. In fact, identical questions had arisen with respect to the assessee's assessments for the years 1961-62, 1962-63 and 1963-64 in T. R. C. Nos. 5, 6 and 8 of 1970, reported in Deputy Commissioner v. I.C.I. (India) P. Ltd. [1973] 32 S.T.C. 392 and a Division Bench of this Court by judgment dated 17th July, 1973, held :
There was an integral connection between the sale and the import and it was not possible for the assessee without committing a breach of contract to divert the goods so imported for any other purpose. Therefore, the transactions were sales in the course of import and were exempt from taxation.
It is also found from paragraph 5 of the order of the Tribunal that in T. A. Nos. 127 and 128 of 1971 arising out of the assessee's assessments for the years 1966-67 and 1967-68 it (the Tribunal) had held, placing reliance on the decision of the Supreme Court in Deputy Commissioner v. Kotak & Co. [1973] 32 S.T.C. 6 (S.C.), that the sales in question were sales in the course of import and accordingly entitled to exemption on a turnover of Rs. 6,21,441.25 and Rs. 2,59,418.33 respectively, thus restoring the order of the assessing officer and reversing the order of the Deputy Commissioner of Agricultural Income-tax and Sales Tax, Central Zone, Ernakulam, who had suo motu, exercising his revisional powers under Section 35 of the Act, disallowed the exemption granted by the assessing officer.
6. In the course of his argument the Government Pleader made a submission that the ruling given by this Court in Deputy Commissioner v. I.C.I. (India] P. Ltd. [1973] 32 S.T.C. 392 would require reconsideration in the light of the subsequent decision of the Supreme Court in Mod. Serajuddin v. State of Orissa [1975] 36 S.T.C. 136 (S.C.), the facts of which case are as follows :
The appellant before the Supreme Court entered into two contracts with the State Trading Corporation for the sale of mineral ore and the corporation in its turn entered into similar contracts with foreign buyers for sale of the identical goods purchased by the corporation from the appellant. Under the terms of the contract between the appellant and the corporation the price was expressed in U. S. dollars per long ton, f. o. b. ocean liner vessel, Calcutta, and the material should be ready in Calcutta harbour for shipment by a particular steamer. The final sampling and moisture determination and the final ascertainment of weight should be done at the port of discharge by certain named persons and their certificate should be final and binding on both the buyer and the seller. The clause in the contract regarding payment was as follows : '90 per cent payment against shipping documents as described in buyers' corresponding sale contract. Buyers will assign the relevant foreign letter of credit which is to be opened in their name by their foreign buyer, Messrs. Associated Metals and Minerals Corporation, on receipt from the sellers of a bank draft for difference between buyers' f. o. b. purchase value and f. o.b. sale value, that is, $ 1.00 (Rs. 4.75) per dry long ton for a bank guarantee from a scheduled bank guaranteeing that sellers will pay buyers immediately upon shipment/shipments the difference between buyers' f. o. b. purchase value as shown in this contract and buyers' f. o. b. sale value as shown in foreign letter of credit, that is, $ 1.00 (Rs. 4.75) per dry long ton by bank draft for each shipment and the buyers will endorse the bills of lading and deliver the same to sellers to negotiate against the above-mentioned letter of credit. Balance after destinational weight and analysis on the basis of documents mentioned in S.T.C.'s corresponding sale contract with buyers. If the balance 10 per cent is insufficient to cover shortfall in weight and analysis at destination or any penalty imposed by the S.T.C.'s foreign buyers, the additional amount shall be payable by sellers to buyers on demand.' Another clause in the contract provided as follows: '(i) Unless otherwise agreed upon, the sellers agree that the contract shall be deemed as cancelled if for any reason whatsoever M/s. Associated Metals and Minerals Corporation cancel their corresponding purchase contract with the buyers for supply of chrome ore ; (ii) The terms and conditions of the buyers' corresponding sale contract with M/s. Associated Metals and Minerals Corporation will apply to this contract also except to the extent specified in this purchase contract; (iii) A true copy of the buyers' sale contract with M/s. Associated Metals and Minerals Corporation is attached.' The appellant claimed that the sales of the mineral ore by the appellant to the corporation were 'sales in the course of export' and were therefore exempt from tax under Section 5 of the Central Sales Tax Act, 1956. The High Court held that the sales were liable to tax. The appellant appealed to the Supreme Court and raised the following contentions in support of his claim: The appellant had entered into negotiations with foreign purchasers and settled all the conditions of the contract and thereafter the corporation entered into an f. o. b. contract with the appellant and with the foreign buyer on identical terms. All the necessary steps including the payment of customs duty for shipment and export had been done by the appellant. Therefore the sale by the appellant to the corporation and the export by the corporation to the foreign buyer constituted one integrated transaction. Second, the export could not be made except by the corporation which could not have diverted the goods to a buyer in India without violating export and import control order. Therefore, the sale was in the course of export. Third, there was no sale in the taxable territory inasmuch as the contract between the appellant and the corporation being on f. o. b. basis, the property in the goods passed only on shipment when the goods were in the stream of export. Fourth, even if it was held that the appellant did not have any contract with the foreign buyer and that privity .was essential the rigid rule of privity of contract should be relaxed in consideration of equity and justice and a realistic approach should be adopted. The nature of entering into contracts through the channel of the corporation raised in reality a presumption of the corporation being an agent of the appellant in the integrated transaction.' " In the Supreme Court, Ray, C. J., Mathew, Beg and Chandrachud, JJ., as they were then (Khanna, J., dissenting), held "(i) that the corporation alone agreed to sell the goods to the foreign buyer and was the exporter of the goods. There was no privity of contract between the appellant and the foreign buyer. The privity of contract was between the corporation and the foreign buyer. The immediate cause of the movement of goods and export was the contract between the foreign buyer who was the importer and the corporation who was the exporter and the shipper of the goods. All relevant documents were in the name of the corporation whose contract of sale was the occasion of the export. The expression 'occasions' in Section 5 of the Central Act means the immediate and direct cause and, but for the contract between the corporation and the foreign buyer, there was no occasion for export. Therefore, the export was occasioned by the contract of sale between the corporation and the foreign buyer and not by the contract of sale between the corporation and the appellant. The circumstance that the appellant sold the goods directly to the corporation to facilitate the performance of the contract between the corporation and the foreign buyer on terms which were similar did not make the contract between the appellant and the corporation the immediate cause of the export. The appellant was under no contractual obligation to the foreign buyer either directly or indirectly. The rights of the appellant were against the corporation. Similarly the obligations of the appellant were to the corporation. The foreign buyer could not claim any right against the appellant nor did the appellant have any obligation to the foreign buyer. All acts done by the appellant were in performance of the appellant's obligation under the contract with the corporation and not in performance of the obligations of the corporation to the foreign buyer ; (ii) that there was no principal and agent relationship between the appellant and the corporation and in the absence of such relationship the agency of necessity did not arise. The relationship between the appellant and the corporation was between two principals and there was no aspect whatever of principal and agent; (iii) that the mention of the f. o. b. price in the contracts between the appellant and the corporation did not render the contracts f. o. b, contracts with the foreign buyer. The shipment of the goods by the corporation to the foreign buyer was the f. o. b. contract to which the appellant was not a party. The directions given by the corporation to the appellant to place the goods on board the ship were pursuant to the contract of sale between the appellant and the corporation. These directions were not in the course of export, because, the export sale was an independent one between the corporation and the foreign buyer. The taking of the goods from the appellant's place to the ship was completely separate from the transit pursuant to the export sale ; (iv) that the fact that the exports could be made only through the State Trading Corporation did not have the effect of making the appellant the exporter where there was direct contract between the corporation and the foreign buyer. Restriction on export that export could be made only through the State Trading Corporation was a reasonable restriction, and was valid ; (v) that the High Court was therefore right in holding that the sales of the appellant to the corporation were exigible to tax because they were not sales in the course of export.
7. The salient features of the transactions involved in the present case, already stated, would clearly indicate that the dictum laid down by the Supreme Court in Deputy Commissioner v. Kotak & Co. [1973] 32 S.T.C. 6 (S.C.) is directly applicable to it, and that the decision of the Supreme Court in Mod. Serajuddin v. State of Orissa [1975] 36 S.T.C. 136 (S.C.) could be clearly distinguished. As is the case in Mod. Serajuddin v. State of Orissa [1975] 36 S.T.C. 136 (S.C.), there were no two sales involved either in the present case or in the earlier case of the assessee reported in Deputy Commissioner v. I.C.I. (India) P. Ltd. [1973] 32 S.T.C. 392. In the present case the Tribunal has found that the sale was in the course of import and that in importing the goods the assessee was only acting as the agent of its customers. Our view, therefore, is that no ground has been made out for reconsidering the ruling given by this Court in Deputy Commissioner v. I.C.I. (India) P. Ltd. [1973] 32 S.T.C. 392, and that it is squarely applicable to the facts of the present case.
In the result, we dismiss the revision ; however, in the circumstances of the case, we direct the parties to bear their respective costs.